U.S.-India Economic Relations

November 5, 2013

The importance of the United States to India's economy may be declining, says a recent publication by researchers with the American Enterprise Institute.

The researchers argue that the key to fulfilling the strategic potential of the U.S.-India relationship is to foster a vibrant, entrepreneurial Indian economy linked to America by ideas, capital, people and technology.

For the United States, this means remaining true to its own principles of economic freedom when it comes to issues such as services trade, liquefied natural gas exports and the expansion of multilateral trading regimes.

Washington should also recognize the shifting shape of India's polity by stepping up engagement with India's best-performing state governments.

For India, the continued deepening of its ties with the world's sole superpower requires the firm repudiation of antimarket measures that have soured both foreign and domestic investors, and a renewed commitment to the incomplete task of economic reform.

In terms of relations with the United States, India ought to prioritize negotiating a high-quality bilateral investment treaty and improving protection for intellectual property rights, conditions for manufacturing and taxation policy.

In addition, India needs to address long overdue reforms in land, taxes, labor and power. Whoever is elected to run India after next year's general elections will have their work cut out for them. The country, which already lags behind most of East Asia in terms of both income and human development, can scarcely afford to slip behind further. If growth continues to stall, it will jeopardize both the U.S.-India strategic partnership and India's rise as a global power.

For now, though, India stands at a proverbial crossroads. Will India sacrifice a historic opportunity to transform itself into a middle-income country at the altar of shortsighted populism? Or will it return to the path of reform, unleash the productivity of its entrepreneurs and swiftly claim a place in the front ranks of global powers? The future of one-sixth of humanity hinges on how these questions are answered.